Stephen M. Johnson: Stephen Johnson is a professor and
Associate Dean at Mercer University Law School. Prior to teaching
at Mercer, he served as an Assistant Counsel in the Pennsylvania Department
of Environmental Resources' Bureau of Regulatory Counsel, and as a Trial
Attorney in the Environment and Natural Resources Section of the U.S. Department
of Justice. In 2003, Professor Johnson was a Fulbright lecturer
in Japan at Waseda University and the University of Tokyo. He has
also taught or visited at Notre Dame Law School, Queen Mary College, University
of London, and Strathclyde University. He received a J.D. from Villanova
Law School and an LL.M. from George Washington University Law School.
He has written numerous articles on environmental justice and recently
completed a book entitled Economics, Equity and the Environment,
which will be published by the Environmental Law Institute.

Virtual lecture

For the first 20 years of modern environmental law in the United States,
the Federal government relied primarily on command and control laws.
Command and control laws require the Federal government to establish uniform
national pollution standards and to apply those standards to major industrial
polluters through a permit program. Polluters who do not obtain permits
or
violate their permits are subject to large civil or criminal
penalties. While that approach was very successful in addressing
the major pollution problems in the 1970s and 1980s, the incremental cost
of cleaning up the pollution that remains after those laws are enforced
has risen dramatically, and critics argue that the command and control
laws are too rigid to address most of the remaining major environmental
problems in the U.S., such as non-point source water pollution. Because
of that,
Federal and State governments are increasingly implementing market-based
approaches to reduce pollution in the U.S.

I. Market-Based Reforms - Background

Market-based pollution control programs use economic incentives to encourage
polluters to reduce their pollution in cost-effective ways. Theoretically,
market-based approaches can achieve the same level of pollution reduction
as command and control laws at a lower cost. In addition, market
based approaches do not require the government to gather large amounts
of information to develop regulations and standards, as do command and
control laws. The major types of market-based approaches that
have been implemented over the past decade are: (1) pollution trading programs;
(2) pollution taxes; and (3) regulatory waiver programs.

In a pollutant trading program, the government gives polluters the “right”
to discharge a specific amount of pollution and allows polluters to buy
and sell their pollution rights. Under a typical trading program,
if a polluter is discharging ten tons of pollution, but only has the “right”
to discharge five tons of pollution, the polluter must either reduce its
pollution discharge by five tons
or buy the right to discharge an additional five tons from another
polluter. If it costs less for the polluter to buy the “right”
to discharge an additional five tons of pollution than it costs to reduce
its discharge by 5 tons, the polluter will buy the additional pollution
rights from another polluter. Thus, the trading system allows the
polluter to choose the most cost-effective means of controlling pollution,
while maintaining specific limits on total pollution levels. In addition,
because polluters can sell their “rights” to other polluters, the system
provides incentives to polluters to reduce their discharges below levels
allowed by law. Further, under some of these programs, the government
retains some of the pollution “rights” and auctions them off to polluters,
so the system can also provide a source of income for the government.

Pollution taxes provide benefits that are similar to trading programs.
In a pollution tax system, the government imposes a tax on the discharge
of a particular type of pollutant. If it costs less for a polluter
to reduce its discharge than to pay the tax for the discharge, the polluter
will reduce the discharge. If not, they will pay the tax. Thus,
pollution reduction is achieved in the most cost- effective manner.
Pollution taxes also provide incentives to polluters to reduce their pollution
discharges beyond levels allowed by law because they can reduce their tax
burden by reducing their discharges. Pollution taxes can also provide
additional revenue for the government; perhaps more than trading programs.
One disadvantage to the tax approach, though, is that it does not guarantee
specific amounts of pollution reduction, in the way that command and control
or trading would, since
if the tax is set too low, polluters will continue to pollute and pay
the tax, instead of reducing their pollution.

Regulatory waiver programs are another type of market-based approach
to pollution control. In these programs, the government waives or
modifies regulatory or other legal requirements that apply to a polluter,
in order to allow the polluter to achieve similar pollution reductions
as those required by law, but in a more cost-effective manner.
In such programs, (i) the government might waive permitting or reporting
requirements for a polluter, or allow it to consolidate permits or reports.
(ii) The government might also exempt polluters from certain technology-based
requirements if the polluters can achieve pollution reductions equal to
those that would be achieved by the technology-based requirements through
other means. (iii) Finally, the government might replace individual
limits on pollution from a plant with a single overall “bubble” limit on
pollution from the plant, so that the polluter can reduce pollution from
one part of the plant to compensate for increases at another part of the
plant. While regulatory waiver programs do not net the government
any money, as do taxes and trading programs, they allow the government
to ensure that specific pollution limits are met, while allowing polluters
to meet those limits in the most cost-effective manner.

II. Environmental Justice: The other side of the coin:

While the market-based approaches are economically more efficient than
“command and control” approaches, they raise other important issues.
Over the past decade, countless studies have demonstrated that minority
and low income communities suffer disproportionate exposure to a variety
of types of pollution under traditional command and control laws.
Those studies have examined hazardous waste facility siting, nuclear waste
facility siting, siting of heaviest polluting industries, air quality violations,
and enforcement patterns.

While the traditional command and control approach has not prevented
environmental injustice, market-based approaches will inevitably exacerbate
the problems. Although the traditional command and control
laws do not require the government to avoid disparate impacts, they also
do not affirmatively encourage unequal distribution of pollution.
By contrast, many market-
based approaches affirmatively encourage polluters to shift pollution
to low income communities. Classical economic theory suggests
that in a free market economy, resources are shifted to those uses in which
the value to consumers, as measured by their willingness to pay is highest.
That is when the market is operating efficiently. However,
most economists incorporate “ability to pay” into “willingness to pay”,
so that an efficient economic system by definition will shift pollution
to low income communities. Because wealthy communities are willing
to pay (or rather able to pay) more for clean air and clean water than
low income communities, the market operates efficiently when it funnels
those resources to the wealthy communities, rather than the low income
communities.

In addition, many market failures prevent low income communities from
even participating in the bargaining process for environmental and health
benefits. (a) Information deficits; (b) financial limits; and (c)
limited opportunities for public participation reduce the opportunities
for low income communities to participate in the bargaining for environmental
and health benefits. To see what I’m talking about, let’s look at
several of the market-based environmental reforms to examine
the potential disparate impacts that they could cause.

A. Pollution Trading Systems and Environmental Justice

Let’s look first at pollution trading programs to see the potential
disparate impacts. The major distributional concern raised by pollution
trading systems is that while trading programs limit the total amount of
pollution that can be discharged through the program, most trading programs
do not impose geographic limits on trades. As a result, while the
programs may reduce overall pollution levels, they could actually increase
pollution levels in specific areas, creating “toxic hot spots.”

Because it is often easier for new companies to install new technologies
or change production process to reduce pollution than it is for older companies
to retrofit their plants to reduce pollution, older, heavily polluting
industries are most likely to find that it is more cost-effective for them
to continue polluting and to buy the right to pollute than to install new
controls. Older plants already have incentives to continue
to pollute at levels higher than new plants because many of the federal
environmental laws include grandfather provisions that allow older plants
to comply with less stringent standards than new plants. The
result is likely to be that the “toxic hot spots” that are created will
likely be centered around older, heavily polluting industries.

If the trading programs create hot spots, economic theory suggests that
the hot spots will most likely occur in low-income communities. There
are several reasons for this. First, heavily polluting industries
are more often sited in low income communities, according to federal pollution
data. Second, low income communities may be less likely to urge a
polluter to implement new pollution controls instead of buying the right
to pollute, because they may fear that if they pressure the polluter
to adopt new controls, the polluter may decide to close, depriving
them of essential jobs and tax revenue. Finally, low income communities
often lack the political power to influence industries to adopt new pollution
controls instead of buying pollution rights.

One trading program has already been demonstrated to exacerbate environmental
injustice. In Los Angeles, California, the State established a program
whereby oil companies could generate VOC pollution credits by paying drivers
in the Los Angeles area to scrap old, heavily polluting automobiles.
Since the drivers who turned in their cars for cash were from all around
the Los Angeles area, the pollution reduction achieved by the program came
from a wide area around Los Angeles. Once the oil companies
had generated the VOC credits by buying up old cars, they used them to
avoid installing new controls on pollution emissions at oil refineries
in low income Latino communities. Consequently, the program reduced
pollution throughout the Los Angeles area, but created hot spots around
the oil refineries in low income communities.

B. Pollution Taxes and Environmental Justice

Pollution taxes can also have disparate impacts on low income communities
because they can have a regressive impact. For instance, low
income households would feel the impacts of an energy tax more keenly than
high income households because low income households spend a greater proportion
of their income on heat, electricity and gasoline than high-income households.
Similarly, variable rate waste disposal fees impose more significant
financial burdens on low income residents than on higher income residents.

C. Regulatory Waiver programs and Environmental Justice

Regulatory waiver programs can also disparately impact low income communities.
Regulatory waivers are usually developed through a time consuming technical
process, and the projects involve detailed analyses of industrial processes
and economics. While affluent communities will be able to hire consultants
and experts to evaluate and comment on the proposals or to challenge the
validity of the agency’s agreements, it will be more difficult for low
income communities to shoulder those expenses.

One form of regulatory waiver program that is being implemented by many
States in a way that can disparately impact low income communities is the
brownfield cleanup program. Many states have created brownfield cleanup
programs to encourage developers to clean up and redevelop property contaminated
by hazardous waste. In order to encourage redevelopment, the programs
usually allow the developer to clean up the property to a level that is
less clean than would be allowed by law if the site was not being managed
under the brownfield cleanup program. Unfortunately for low income
and minority communities, most of the sites that are being targeted for
cleanup (and reduced cleanup standards) under the programs are in the urban
core, in low income and minority communities.

III. Environmental Law: More Considerations than Efficiencies

Economists defend the market-based approaches by arguing that economic
theory does not make value judgments regarding the distribution of resources
or the moral or social implications of “efficient” allocation of resources.
However, environmental law developed and flourished precisely because economic
theory and the free market did not address those concerns.

Environmental laws often incorporate a moral vision and strive to advance
civic values that are ignored in the free market. While environmental
laws should weigh economic issues, the laws should not substitute economic
considerations for the important social considerations that motivated legislators
to enact the laws in the first place.

IV. Compromises

Since it is likely that the Federal and State governments in the United
States are likely to continue to rely on market-based approaches to address
pollution control, it is important to look for ways to reduce the potential
disparate impacts that may be caused by such approaches. For
many of the market-based approaches described above, the market funnels
pollution toward low income communities because such communities either
(1) lack information about the decisions that are being made that will
adversely affect the health and environment of their community; (2) lack
the financial resources necessary to participate in that decisionmaking
process; or (3) lack notice of, and the opportunity to participate equally
in, that decisionmaking process.

In order to minimize the disparate impacts that may be caused by market-based
pollution control programs, such programs should include (1) provisions
to improve access to information regarding the programs and decisions made
in the program; (2) grants, loans and financial assistance to facilitate
public participation in the decisionmaking process; (3) broader public
participation provisions; and (4) a command and control safety net.

Theoretically, markets operate “efficiently” if consumers have perfect
information. If they do not, as they often do not in practice, in
the environmental arena, a community may be unaware that a particular action
could adversely affect the health or environment of the community and the
community may, therefore, fail to bargain with the actor to prevent the
harm. One obvious way to address this market failure and to
foster environmental justice is to improve consumers’ access to information.
Market-based reforms could include provisions that require participants
or the government to provide detailed information to communities about
the potential environmental and public health impacts of pollution trades,
waivers or modifications of regulatory requirements, or similar market-based
initiatives. The power of such information disclosure laws has already
been
demonstrated in the environmental arena, where right to know laws,
such as the EPCRA and the consumer confidence provisions of the Safe Drinking
Water Act, have been very successful in correcting information deficits
in the market and spurring pollution reduction through the market.
Information disclosure requirements would reduce, but not eliminate, the
likelihood that the market would allocate resources inefficiently.
In addition, information disclosure provisions would promote
individual autonomy and advance democratic decisionmaking.

Low income communities may also fail to participate in the market for
health and environmental benefits because the communities do not have sufficient
financial resources to bargain for those benefits or even to participate
in the decisionmaking process. In a market-based system, low income
communities may never have sufficient financial resources to bargain successfully
for environmental or health benefits. However, technical assistance
grants and loans could be made available to communities that would, at
the very least, enable communities to participate in the decisionmaking
process. Such funds could be used to review trades, waivers and similar
market-based actions. Without such assistance, communities
may be unable to retain experts to evaluate the environmental and health
impacts of pollution trades, waivers or modifications, or to evaluate
other market-based actions. Another way that grants and
loans could be used to help reduce environmental justice problems is by
increasing grants and loans to businesses to implement pollution prevention
programs. Pollution prevention is perhaps the best tool in the battle
for environmental justice, but the government has not committed sufficient
funds or resources to
promoting it.

While technical assistance grants and loans may increase the likelihood
that a community can afford to participate in environmental decisionmaking
in market-based programs, other obstacles have limited public participation
by low income and minority communities in the past. Traditionally,
in many command and control programs, communities have not been provided
with information or an opportunity to provide input in the process until
the government has, for all intents and purposes,
selected a course of action. Additionally, public meetings and
hearings have been scheduled at times, locations, and in formats that limit
opportunities for public participation. Accordingly, broad
and flexible public participation provisions should be included in pollution
trading, regulatory waiver or variance programs, and other market-based
programs, to enable low income communities, and all citizens, to participate
in the market for health and environmental amenities.

The National Environmental Justice Advisory Council developed a Model
Plan for Public Participation that establishes several core values for
public participation and recommends, among other things, soliciting stakeholder
involvement early in the policy-making process, developing relationships
with community organizations and providing resources for their needs, regionalizing
materials to ensure cultural sensitivity and relevance, and scheduling
meetings and hearings to make them accessible and user friendly for stakeholders.
Public participation is even more important in market-based programs than
in traditional command and control programs, because market-based programs
reduce the role of the government as a decisionmaker and, thus, reduce
the protections afforded to minority interests.

Each of the preceding proposals would work with the market, and not
supercede the market in any way. In addition, though, in order to
reduce the potential for market-based programs to funnel pollution to low
income communities, it may be necessary to build “command and control safety
nets” into the programs. While the preceding proposals would increase
the ability of low income communities to participate in the decisionmaking
process, they would not significantly increase the ability (“willingness”?)
of such communities to pay to health and environmental benefits.
Without some additional “safety nets,” it is still likely that market-based
programs will increase environmental injustice. What do I mean by
“command and control safety nets?” Well, market based programs could
include provisions that prohibit trades, waivers of environmental laws
or regulations, or other actions that disparately impact low income or
minority communities. Alternatively, regulators could be required
to examine the impacts of those actions on low income communities, similar
to the approach used in NEPA, the National Environmental Policy Act.

Both of those approaches may be difficult to implement, politically
and administratively. The approaches increase the government’s role
in reviewing and overseeing private actions in a market-based system and
seem antithetical to the rationale for the reforms. To the
extent that the government prohibits certain trades or regulatory waivers
that disparately impact low income communities, or reviews the distributional
impacts of trades, waivers, and other actions in a market-based system,
businesses and the regulated community may be less likely to take advantage
of the tools. Nevertheless, it is likely that without
such safety nets, market-based programs will funnel pollution to low income
and minority communities despite other reforms of the program that attempt
to provide low income communities with greater power in the market.

V. Conclusion

Market-based pollution control programs are here to stay in the U.S.,
and it is trying to export them as broadly as possible, by fighting for
their inclusion in most recent international environmental treaties.
Since the programs are not likely to go away soon, steps must be taken
to ensure that the programs do not continue to funnel pollution towards
low income and minority communities.